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Conversion Labs Q3 2020 Revenue up 252% to Record $11.0 Million

Conversion Labs, Inc.
·20 min read

NEW YORK, Nov. 16, 2020 (GLOBE NEWSWIRE) -- Conversion Labs, Inc. (OTCQB: CVLB) (OTCQB: CVLBD), a direct-to-consumer telemedicine and wellness company, reported results for the third quarter and first nine months ended September 30, 2020. All quarterly and first nine-month comparisons are to the same year-ago periods unless otherwise noted. The company will hold a conference call at 4:30 p.m. Eastern time today to discuss the results (see dial-in information, below.)

Q3 2020 Financial Highlights

  • Revenue totaled a record $11.0 million, up 252%.

  • Gross profit increased 238% to $8.3 million or 75.1% of revenue.

  • Annual recurring revenue (ARR) from subscriptions to products and services in September 2020 increased 458% to $19.3 million compared to September 2019 (see definition of ARR, below).

9M 2020 Financial Highlights

  • Revenue increased 186% to a record $24.4 million.

  • Gross profit increased 172% to $17.7 million or 72.6% of revenue.

Q3 Operational Highlights

  • Customers on subscription across all brands increased 30% over previous quarter.

  • Launched two new Shapiro MD over-the-counter products for women, including a leave-in hair conditioner and a thyroid heath support supplement.

  • Advanced the development of the company’s new cloud-based telemedicine platform, Veritas MD with third-party verification of the platform’s new e-prescription functionality. Veritas MD is designed to support the rapid growth and market expansion of the company’s telehealth brands. The official launch of the platform is planned before the end of the year.

  • Holistic health and preventative care expert, Dr. Jeff Toll, joined Conversion Labs’ medical advisory board to help guide the development and expand awareness of the company’s growing portfolio of telemedicine brands.

  • Completed $3.5 million equity financing with strategic investors in preparation for Nasdaq Capital Market uplist.

Q3 2020 Financial Summary

Revenue in the third quarter of 2020 increased 252% to a record $11.0 million from $3.1 million in the same year-ago quarter. The company’s PDFSimpli subsidiary, a software as a service (SaaS) that allows users to convert, edit, sign and share PDF documents, contributed net sales of $1.6 million, up 136% from the year-ago quarter.

Gross profit in the third quarter of 2020 increased 238% to $8.3 million, compared to $2.4 million in the same year-ago quarter. Gross profit as a percentage of revenue in the third quarter of 2020 decreased to 75.1% from 78.2% in the same year-ago quarter. The decrease was due primarily to product mix.

Operating expense in the third quarter of 2020 was $28.8 million, up from $3.4 million in the same year-ago quarter. The increase was primarily due to increases of $8.5 million in selling and marketing expenses, as well as $16.7 million in general and administrative expenses, $120,000 in other operating expenses, $90,000 in customer service and $57,000 in development costs.

General and administrative expenses for the three months ended September 30, 2020 included stock-based compensation of $16.3 million, with the majority related to a restricted share issuance liability attributable to the attainment of a performance threshold specifically in the third quarter of 2020.

Net loss attributable to common stockholders for the third quarter of 2020 was $24.2 million or $(1.65) per share, as compared to a net loss attributable to common stockholders of $944,000 or $(0.09) per share in the third quarter of 2019. In addition to the stock-based compensation expense, net loss for the third quarter of 2020 included other non-cash or financing-related charges, such as interest expense of $291,000 and combined amortization expenses of $630,000.

Adjusted EBITDA, a non-GAAP term, totaled negative $3.4 million in the third quarter of 2020, compared to negative $248,000 in the same year-ago quarter (see definition of this non-GAAP term and reconciliation to GAAP, below.)

Cash totaled $917,000 at September 30, 2020, as compared to $336,000 at June 30, 2020. Subsequent to the end of the third quarter, the company completed a private placement equity offering with institutional investors that generated net proceeds of $13.2 million. As of November 16, 2020, the company’s cash balance totaled approximately $11.7 million.

First Nine Months 2020 Financial Summary

Revenue in the first nine months of 2020 increased 186% to a record $24.4 million from $8.5 million in the same year-ago period. The company’s PDFSimpli subsidiary, a software as a service (SaaS) that allows users to convert, edit, sign and share PDF documents, contributed net sales of $4.1 million, up 241% from the year-ago period.

Gross profit in the first nine months of 2020 increased 172% to $17.7 million, compared to $6.5 million in the same year-ago period. Gross profit as a percentage of revenue in the first nine months of 2020 decreased to 72.6% from 76.4% in the same year-ago period. The decrease was due to higher product costs, resulting from the impact of COVID-19 related disruptions to the company’s product supply chain, causing increased costs to procure production inputs. The company expects this to be resolved over time, with an anticipated return to its historically higher margin.

Operating expense in the first nine months of 2020 was $43.2 million, up from $8.9 million in the same year-ago period. The increase was primarily due to increases of $16.1 million of selling and marketing expenses, as well as $18.1 million in general and administrative expenses, $80,000 in customer service and $131,000 in development costs. The increase was partially offset by a decrease of $36,000 in other operating expenses.

General and administrative expenses for the nine months ended September 30, 2020 included stock-based compensation of $16.9 million, with the majority related to a restricted share issuance liability attributable to the attainment of a performance threshold specifically in the third quarter of 2020.

Net loss attributable to common stockholders for the first nine months of 2020 was $31.3 million or $(2.49) per share, as compared to a net loss attributable to common stockholders of $2.4 million or $(0.25) per share in the first nine months of 2019. The net loss for the first nine months of 2020 also included certain non-cash or financing-related charges, such as interest expense of $1.3 million, amortization expenses of $93,000, financing transactions expense of $62,000, acceleration of debt discount of $500,000, inventory valuation adjustment of $769,000, non-cash deemed distributions to common and preferred shareholders of $4.9 million, and stock-based compensation expense of $16.9 million.

Adjusted EBITDA, a non-GAAP term, totaled negative $5.3 million in the first nine months of 2020, compared to negative $787,000 in the same year-ago period (see definition of this non-GAAP terms and reconciliation to GAAP, below.)

Management Commentary
“Q3 was another quarter of outperformance across our key financial and operational metrics, as 2020 continued to be a transformational year for Conversion Labs,” commented company CEO, Justin Schreiber. “Most of our growth is due to the launch of our direct-to-consumer telemedicine platform and the overall performance of our entire brand portfolio. This has generated strong organic growth and an increasing amount of subscription revenue.

“As we all have witnessed, the ongoing COVID-19 pandemic has accelerated everything e-Commerce, but this has been especially true for telemedicine. The many benefits and advantages of telemedicine, and particularly telepharmacy, have now been more revealed by the rapidly increasing consumer adoption.

“The tailwinds created by this paradigm shift has clearly helped strengthen the demand for our brands, and especially in the third quarter, resulting in record revenue of $11 million. This was up 21% from just the previous quarter and up 252% compared to the same year-ago quarter.

“This acceleration has continued into the fourth quarter, with October continuing to set new records. Net sales came in at $4.1 million, up more than 245% over October of last year. In fact, we did more this October than for the whole fourth quarter of last year. Given this acceleration in October, and combined with November as typically being our strongest month, we remain confident we will achieve our upwardly revised guidance of $40 million in revenues for 2020.

“Looking at October and the first couple weeks of November, we have actually achieved an overall annualized revenue run-rate of nearly $50 million. This compares to $12.5 million for all of last year — a solid four-fold increase. This run-rate is also up by more than $2.1 million from September, showing a continued rapid acceleration in the overall growth of the business.

“Another key metric to watch is our annual recurring revenue (ARR) from subscriptions to our products and services. In the last month of the third quarter, that is September, it increased by 458% to $19.3 million compared to September of last year. In October, this jumped by $2.8 million or 14% to $22.1 million, and was up 514% versus October of last year. So, our fourth quarter is well on track to be another record quarter in terms of topline revenue and ARR from subscriptions.

“Given the consistent trends since the beginning of the year, while amazing, these results are very much in line with what we planned for and expected. It also continues to validate the expertise of our team, our technology platform and telehealth provider network, and the incredible growth opportunity ahead. We see this as only the first inning for Conversion Labs, as we continue to build out the foundation for an industry leading telehealth business.

“As an early mover in telehealth, we believe the coming quarters will be pivotal in establishing our reputation and status as a leader in this rapidly growing marketplace. While we are seeing strong growth across the business, it is important to recognize that we are making big investments in our people and infrastructure that are essential to support the exponential growth that lies ahead. This includes big investments in our telehealth technology platform, our provider network, and on medical, financial, operations and compliance personnel that are critical as we scale the business.

“To support these investments in our growth, we recently completed a $15 million financing led by a select group of institutional investors who believe in our long-term outlook. Our balance sheet is now stronger than it has ever been before, and this will enable us to scale many of our planned campaigns where we have proven and very attractive unit economics. It also gives us the ability to test and scale new traffic sources, both online and offline.

“The funding also enables us to continue the buildout of our telehealth platform and our planned uplist to the Nasdaq capital market. We believe a Nasdaq listing can be transformational for all shareholders. It will open the doors wider to institutional investors and especially for retail, where we have a very relatable and compelling investment story for the individual investor.

“Also, in preparation for Nasdaq, we recently appointed two fairly impressive members to our board of directors, Roberto Simon and Dr. Connie Mariano. Roberto currently serves as the CFO of WEX, a $6+ billion fintech services provider traded on the NYSE. He previously served as the CFO of Revlon, overseeing its global finance and IT operations as it grew to nearly $2 billion in annual sales.

“Dr. Mariano has served our country as a U.S. Navy Rear Admiral and as the White House Physician for three sitting presidents. Needless to say, she has been a major pioneer in breaking barriers and has an incredible presence as a leader in healthcare.

“We will also soon formally launch the expansion of Rex MD with new medical indications. We expect this to cement our presence as a leader in men’s health. Rex MD’s new capabilities will be delivered by our new proprietary telehealth technology platform, Veritas MD, which is also nearing its official launch.

“We are in late-stage discussions with certain key female influencers that we believe will be a major catalyst for growth in our Shapiro MD telemedicine offering. This will dovetail with the licensing arrangement we attained for Restoresea’s leading medical grade skincare technology platform.

“We’re very excited to leverage their platform for the upcoming launch of our new teledermatology brand, Nava MD, that we announced last month. Restorsea’s IP and clinical results were the culmination of over $50 million in R&D investment that produced 35 patents, and broad industry and medical acclaim. Nava MD will be positioned as an online skincare telehealth brand that offers prescription-grade teledermatology products to patients in all 50 states.

“Looking ahead, we see our Conversion Labs telemedicine platform continuing to drive growth and opportunities, as we continue to build shareholder value over the months and years to come.”

Conference Call
Conversion Labs management will host a conference call followed by a question and answer period to discuss the company’s financial results and outlook.

Date: Monday, November 16, 2020
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
Toll-free dial-in number: 1-800-430-8332
International dial-in number: 1-720-452-9103
Conference ID: 9683420

The conference call will be webcast live and available for replay here as well as via a link in the Investors section of the company’s website at ir.conversionlabs.com.

Please call the conference telephone number five minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact CMA at 1-949-432-7566.

A replay of the call will be available after 7:30 p.m. Eastern time on the same day through November 30, 2020.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 9683420

About Conversion Labs
Conversion Labs, Inc. is a telemedicine company with a portfolio of online direct-to-consumer brands. The company’s brands combine virtual medical treatment with prescription medications and unique over-the-counter products. Its network of licensed physicians offers telemedicine services and direct-to-consumer pharmacy to consumers across the U.S. To learn more, visit Conversionlabs.com.

Annual Recurring Revenue (ARR)
Conversion Labs calculates annual recurring revenue (ARR) by multiplying by 12 the monthly sum of revenue attributed exclusively to automatic subscription sales from customers that are engaged in the company’s rebill structure for the brands of Shapiro MD, Rex MD and PDFSimpli. In the company’s calculation of ARR, it does not consider sales from customers that repurchase its products themselves in the company’s checkout pages, Amazon Marketplace or through assistance of the company’s customer service representatives, since those sales have a marginal advertising/marketing expense associated with the respective sale. The company also does not consider the revenue attributed to the initial purchase upon acquisition of the respective customer.

About the Use of Non-GAAP Financial Measures
The management of Conversion Labs believes that the use the non-GAAP measure, adjusted EBITDA, is helpful for an investor to assess the performance of the company. The company defines adjusted EBITDA as income (loss) attributable to common shareholders before interest, taxes, depreciation, amortization, financing expense, acceleration of debt discount, inventory valuation adjustment, and stock-based compensation expense.

Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP. Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact a company’s non-cash operating expenses, management believes that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between the company’s core business operating results and those of other companies, as well as providing the company with an important tool for financial and operational decision making and for evaluating its own core business operating results over different periods of time.

The company’s adjusted EBITDA measure may not provide information that is directly comparable to that provided by other companies in its industry, as other companies in its industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items. The company’s adjusted EBITDA is not a measurement of financial performance under GAAP, and should not be considered as an alternative to operating income (loss) or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. Conversion Labs management does not consider adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.

The following table sets-forth non-GAAP adjusted EBITDA reconciled to its nearest comparable GAAP equivalent:

Three months ended
September 30,

Nine months ended
September 30,

2020

2019

2020

2019

Net loss attributable to common shareholders

$

(24,196,006

)

$

(943,804

)

$

(31,306,259

)

$

(2,425,656

)

Interest expense, net

291,096

130,936

1,313,010

430,956

Amortization expense

92,846

83,903

287,710

251,709

Amortization of debt discount

536,866

106,585

1,276,190

192,853

Financing transactions expense

-

-

62,012

-

Acceleration of debt discount

-

4,536

500,145

4,536

Inventory valuation adjustment

-

-

769,378

-

Deemed distribution to holders of common and Series B Preferred stock

3,573,636

-

4,910,045

-

Stock-based compensation expense

16,331,558

369,415

16,901,233

758,475

Adjusted EBITDA

$

(3,370,004

)

$

(248,429

)

$

(5,286,536

)

$

(787,127

)

Important Cautions Regarding Forward-Looking Statements
This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, regarding, among other things our plans, strategies and prospects -- both business and financial. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, we cannot assure you that we will achieve or realize these plans, intentions or expectations. Forward-looking statements are inherently subject to risks, uncertainties and assumptions. Many of the forward-looking statements contained in this news release may be identified by the use of forward-looking words such as "believe," "expect," "anticipate," "should," "planned," "will," "may," "intend," "estimated," and "potential," among others. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this news release include market conditions and those set forth in reports or documents that we file from time to time with the United States Securities and Exchange Commission. All forward-looking statements attributable to Conversion Labs, Inc. or a person acting on its behalf are expressly qualified in their entirety by this cautionary language.

Trademarks are the property of their respective owners.

Company Contact
Conversion Labs
Juan Manuel Piñeiro Dagnery
CFO
Email Contact

Media and Investor Relations Contact
Ron Both or Grant Stude
CMA Investor Relations
Tel (949) 432-7566
Email Contact

CONVERSION LABS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

September 30, 2020

December 31, 2019

ASSETS

Current Assets

Cash

$

916,637

$

1,106,624

Accounts receivable, net

414,342

97,448

Product deposit

1,093,388

150,000

Inventory, net

1,858,545

950,059

Other current assets

370,078

442,971

Total Current Assets

4,652,990

2,747,102

Non-current assets

Right of use asset, net

18,173

23,625

Capitalized Software, net

334,585

-

Intangible assets, net

423,743

675,452

Total non-current assets

776,501

699,077

Total Assets

$

5,429,491

$

3,446,179

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current Liabilities

Accounts payable and accrued expenses

$

7,269,145

$

3,051,156

Notes payable, net

1,754,143

814,734

Contract liabilities

412,616

109,552

Total Current Liabilities

9,435,904

3,975,442

Long-term Liabilities

Lease Liability

28,241

29,978

Contingent consideration on purchase of LegalSimpli

100,000

500,000

Liability to issue common stock

218,848

-

Series B Preferred Stock - put liability

3,541,137

-

Deferred tax liability

70,000

70,000

Total Liabilities

13,394,130

4,575,420

Commitments and contingencies

Stockholders’ Deficit

Preferred Stock, $0.0001 per value; 4,996,500 and 5,000,000 shares authorized

Series B Preferred Stock, $0.0001 per value; 5,000 and 0 shares authorized, 3,500 and 0 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

-

-

Common stock, $0.01 par value; 100,000,000 shares authorized, 15,634,962 and 10,680,730 shares issued, 15,531,922 and 10,577,690 outstanding as of September 30, 2020 and December 31, 2019, respectively

156,349

106,807

Additional paid-in capital

40,614,348

15,663,626

Accumulated deficit

(47,901,176

)

(16,594,917

)

(7,130,479

)

(824,484

)

Treasury stock, 103,040 and 103,040 shares, at cost

(163,701

)

(163,701

)

Total Conversion Labs, Inc. Stockholders’ Deficit

(7,294,180

)

(988,185

)

Non-controlling interest

(670,459

)

(141,056

)

Total Stockholders’ Deficit

(7,964,639

)

(1,129,241

)

Total Liabilities and Stockholders’ Deficit

$

5,429,491

$

3,446,179


CONVERSION LABS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Product revenues, net

$

9,433,136

$

2,461,765

$

20,258,750

$

7,309,524

Software revenues, net

1,567,627

664,962

4,136,608

1,214,600

Service revenues, net

5,000

-

5,000

-

Total Revenues, net

11,005,763

3,126,727

24,400,358

8,524,124

Cost of product revenue

2,338,831

612,072

5,800,992

1,811,938

Cost of software revenue

396,105

68,009

883,791

201,327

Cost of revenues

2,734,936

680,081

6,684,783

2,013,265

Gross Profit

8,270,827

2,446,646

17,715,575

6,510,859

Expenses

Selling & marketing expenses

10,528,833

2,073,016

21,669,046

5,580,276

General and administrative expenses

17,589,366

929,471

20,096,893

2,034,067

Operating expenses

336,001

216,065

663,752

700,225

Customer service expenses

230,788

140,579

488,455

408,795

Development Costs

118,346

61,221

288,813

157,736

Total expenses

28,803,334

3,420,352

43,206,959

8,881,099

Operating Loss

(20,532,507

)

(973,706

)

(25,491,384

)

(2,370,240

)

Interest expense, net

(291,096

)

(130,936

)

(1,313,010

)

(430,956

)

Loss from operations before provision for income taxes

(20,823,603

)

(1,104,642

)

(26,804,394

)

(2,801,196

)

Provision for income taxes

-

-

-

-

Net Loss

(20,823,603

)

(1,104,642

)

(26,804,394

)

-

(2,801,196

)

Net (loss) attributable to noncontrolling interests

(201,233

)

(160,838

)

(408,180

)

(375,540

)

Net loss attributable to Conversion Labs, Inc.

$

(20,622,370

)

$

(943,804

)

$

(26,396,214

)

$

(2,425,656

)

Deemed distribution to holders of common and Series B Preferred stock

(3,573,636

)

-

(4,910,045

)

-

Net loss attributable to Conversion Labs, Inc. common stockholders

$

(24,196,006

)

$

(943,804

)

$

(31,306,259

)

$

(2,425,656

)

Basic loss per share attributable to Conversion Labs, Inc. common stockholders

$

(1.65

)

$

(0.09

)

$

(2.49

)

$

(0.25

)

Diluted loss per share attributable to Conversion Labs, Inc. common stockholders

$

(1.65

)

$

(0.09

)

$

(2.49

)

$

(0.25

)

Weighted Average number of common shares outstanding:

Basic

14,674,693

10,134,968

12,581,401

9,627,093

Diluted

14,674,693

10,134,968

12,581,401

9,627,093